Question
Whispering Pines, Inc., is all-equity-financed. The expected rate of return on the companys shares is 12.75%. a. What is the opportunity cost of capital for
Whispering Pines, Inc., is all-equity-financed. The expected rate of return on the companys shares is 12.75%.
a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Cost of capital %
b. Suppose the company issues debt, repurchases shares, and moves to a 27% debt-to-value ratio (D/V = .27). What will be the companys weighted-average cost of capital at the new capital structure? The borrowing rate is 8.25% and the tax rate is 40%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Weighted-average cost of capital %
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